In an effort to fuel a start-up boom, the Ministry of Planning and Investment (MPI) is drafting a decree to create a legal framework for funding start-ups.

Viet Nam is building an ecosystem to encourage start-ups. – Photo dangcongsan.vn

The ministry said that raising funds is prerequisite for start-ups’ success. Due to their high risk of failure, these fledgling companies often face difficulty in accessing bank capital.

Currently, Viet Nam only has a legal framework for securities investment funds, which by law must be founded with a large amount of capital, and are not often equipped or prepared to invest in start-ups. Thus, it is important to create a legal framework for funding start-ups as well as policies to promote this activity, the ministry said.

In the draft decree, the ministry proposed two models for accredited investors, including venture capital corporations and venture capital funds. The venture capital corporations and funds would be provided with tax incentives, the draft said.

However, investors must meet financial requirements for founding venture capital corporations and funds. They must have had an average annual income of VND200 million (US$8,800) in the two most recent years and minimum total assets of VND500 million for individual investors and VND1 billion for organisational investors.

The draft is now open for public comments on the MPI’s website mpi.gov.vn.

Viet Nam is witnessing an increasing presence of foreign venture capital funds, such as CyberAgent, 500 Start-ups and Golden Gate Ventures, as well as growing interest in funding start-ups from big companies and private investors. Nevertheless, these companies have yet to establish a concrete legal framework or a defined fund raising mechanism, and so do not possess any legal status in the eyes of administrative agencies.

There were also local investment funds, such as VCBF - a joint venture between Vietcombank and Franklin Templeton Investment, but they nearly did not invest in early stages of start-ups because they perceive it as too risky. FPT Venture is the only local fund that is active in funding start-ups from day one, assuming the heavy risk this entails.

Despite the existence of venture capital funding for Vietnamese start-ups, the MPI reports that most Vietnamese start-ups raise capital from investors and organizations, including venture capital firms, in modest sums, from US$5,000 to $50,000.

The MPI hopes the new legal framework will spur greater lending from existing venture capital firms.

The Government of Viet Nam is working to promote a start-up wave in the country, with a national project of building a start-up ecosystem by 2025.